Question
A company purchased an asset for $150,000 and depreciated it using the SL method with a depreciation life of 5 years, without the half-year convention.
A company purchased an asset for $150,000 and depreciated it using the SL method with a depreciation life of 5 years, without the half-year convention. The company is profitable, and the depreciation expenses were used to reduce annual income taxes. Originally, the company was using a MARR of 15%, in an economic environment with zero inflation. The marginal tax rate for the company was 30%. However, the economic situation changed so that inflation rapidly changed to 4.35% per year in the first year, and remained at that level. The company adjusted its MARR accordingly. Compute the time 0 value of the loss of the tax shield due to inflation. You may use approximate interest rates to enable table lookup instead of formula evaluation.
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